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Vol. 11, No. 30 Week of July 23, 2006
Providing coverage of Alaska and northern Canada's oil and gas industry

Canada LNG deals on roll

Government leaders endorse Gazprom, Petro-Canada’s deal in pushing LNG

Gary Park

For Petroleum News

Liquefied natural gas projects in western and eastern Canada are making bold advances, with Kitimat LNG forming a new joint venture and opening the door to possible sales in the Alberta oil sands region as well as the North American Pacific coast, while Russia and Canada seem headed towards a supply agreement that will clinch a regasification terminal in Quebec.

The two developments give a shot of optimism to LNG development in Canada, offsetting the disappointment of Anadarko’s decision to sell its Nova Scotia terminal to a private U.S. Venture Energy, an equity firm, for US$125 million.

Two years of negotiations between Russian gas giant Gazprom and Petro-Canada are headed for agreement later this year on a 25-year gas supply contract, establishing ties between Russia’s vast gas resources and North American markets.

Russian President Vladimir Putin and Canada’s Prime Minister Stephen Harper issued a joint statement at the G8 summit July 16 promoting the stabilizing role LNG can play in global energy markets.

“We shall take measures both nationally and internationally to facilitate investments into a sustainable global energy value chain to … develop global LNG markets,” they said.

“Rapidly growing LNG trade is gradually supplementing the existing regional systems of pipeline gas supplies,” the statement said. “To reduce huge investments risks and facilitate smoothing functioning of the emerging global LNG market, we will seek to create appropriate investment conditions.”

Putin endorsed the efforts to strike an agreement between Gazprom and Petro-Canada, pledging to respect market principles and transparency — a key attempt to deflect criticism after Russia’s decision earlier this year to cut gas supplies to the Ukraine during a pricing dispute.

Mention of “appropriate investment” was seized on as clear evidence of backing at the highest political levels for the Gazprom-Petro-Canada pact, although Russia’s Energy Minister Viktor Kristenko said the Gros Cacouna project, a joint venture by Petro-Canada and TransCanada, will be only one of several North American outlets for Russia’s burgeoning gas development from the Shtokman fields in the Barents Sea and the Sakhalin-2 field on the Pacific coast, which could produce 10 million metric tons of LNG a year after 2008.

Graham Lyon, Petro-Canada International’s vice president of business development, said his company is confident of a 25-year supply pact with Gazprom in a matter of weeks and certainly no later than the end of 2006.

For Petro-Canada that could include a 50 percent stake in a possible US$2 billion gas liquefaction plant near St. Petersburg, Russia, and buying into a Gazprom field being developed in Siberia, while Gazprom has pressed to be part of the regasification, distribution and marketing chain.

Kitimat LNG inks JV

On Canada’s British Columbia coast there was a significant breakthrough when Kitimat LNG, a unit of privately held Galveston LNG, Pacific Northern Gas, a small B.C. gas distributor, linked up to add a transmissions pipeline from the regasification terminal planned for the deepwater port at Kitimat.

Kitimat LNG Chief Executive Officer Rosemary Boulton described the Pacific Trail Pipeline joint venture as a “key milestone” in Kitimat LNG’s search for LNG supplies from Pacific sources such as Australia, Indonesia and Malaysia and the effort to line up end users.

Giving further impetus was word from the backers that Alberta oil sands producers are potential buyers of the depressurized gas, adding another layer to the hopes of making sales to utilities and other customers in the Greater Vancouver region, the U.S. Pacific Northwest and California.

Pending receipt of a Canadian government environmental approval and negotiations of long-term supply contracts, Kitimat LNG hopes to start construction next year on the C$500 million receiving terminal in 2007 and bring the whole project online in 2009, chief executive officer Rosemary Boulton told Petroleum News.

She said the latest progress means Kitimat LNG is open for business with anyone interested in supplying LNG or buying the end product.

The terminal is being designed to handle an initial 1 billion cubic feet per day.

Pipeline a link to Westcoast Energy

The Pacific Trail pipeline includes a link of 290 miles to Summit Lake in northeastern British Columbia where gas could feed into Duke Energy’s Westcoast Energy network, flowing east to Alberta and south to Greater Vancouver, Washington State and California.

The pipeline price tag ranges from C$900 million to C$1.2 billion, depending on whether the partners opt for a diameter of 30 inches or 36 inches.

Adding oil sands producers to the potential mix injects a fresh element at a time when the oil sands are facing criticism for the clean fuel they use to effectively produce a dirty energy source, especially with Western Canada’s own supplies of conventional gas struggling to even hold the line.

As Boulton noted, the demand for gas to fuel oil sands extraction and processing is “changing the dynamics” of the whole North American gas market.

Without identifying the players, she said commercial discussions are occurring.

For now, Kitimat LNG has opened a gap on a second British Columbia LNG development.

WestPac Terminals is on the verge of submitting plans to regulators for an LNG storage and processing terminal at Prince Rupert, near Kitimat.

Its C$350 million plant is targeting a 2011 start-up to handle LNG shipments from the Asia/Pacific region to send out 300 million cubic feet per day.

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